inventories and agriculture

Inventories

• raw materials (awaiting prod)

• WIP

• Finished goods

• Goods purchased held for resale

Inventories measurement

Lower of cost and nrv

Cost: purchase price less discounts plus import duties, non refundable tax, directly attributable costs incl delivery & handling

Cost of conversion: direct costs of unit production direct labour, materials and subcontractors plus allocation of fixed & var overheads

Other costs: not incl in purchase eg costs to design a product for a specific customer

Determining cost

• standard cost based on Normal levels of materials and supplies, labour efficiency capacity and utilisation. Must review regularly

• Retail method: reduce sales value by GP margin

Interchangeable items

Identical or similar no way of determining which bought when

• FIFO (most recent purchases are left at year end)

• Weighted avg cost - recalculated periodically or as each shipment received

• Must use same method for similar items

NRV

The estimated selling price in ordinary course of business less

• estimated cost of completion (if not yet finished goods)

• Estimated costs necessary to make sale (marketing, selling, distribution)

NRV less than cost

Due to

• errors in production or purchasing

• Increase in cost

• Fall in selling price

• Physical deterioration of inventory

• Loss leader

• Obsolete

Agriculture

• biological assets - living

• Biological transformation - growth, degeneration, production, procreation

• Agricultural produce

• planting/ birth to harvest/ slaughter= agriculture

• Harvest/ slaughter to sale = normal inventory

Agriculture recognition

• entity controls asset as a result of past event

• Probable future economic benefits

• FV or cost measured reliably

• Then it’s a NCA

• Measure at cost initially, then end each reporting period FV less costs to sell